Tuesday

24th Apr 2018

Romania accuses Austrian banks of foul play

  • Basescu: 'I don't want to believe we will be left to pay the bills of banks' greed' (Photo: Romania Libera)

Rules by Austrian regulators limiting lending to eastern European countries are a "mistake" and lack "fair play" after Austrian banks made "huge profits" in the region, Romanian President Traian Basescu said in a speech in Bucharest on Thursday (24 November).

To protect its own triple-A credit rating, Austrian regulators earlier this week instructed three of the country's major banks to boost capital reserves and limit cross-border loans, particularly to eastern Europe, after they had reported losses in the region.

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Ratings agencies such as Fitch have warned that Austria's grade is vulnerable due to its banks' exposure to central and eastern Europe as well as Italy.

"The announcement made by the Austrian National Bank was either a mistake or a lack of understanding when it comes to its effects. We would not want to remind our European friends to what extent they linked Romania's EU membership to the privatisation of its banking system," Basescu said, in reference to the rotating EU presidency held by Vienna just before Romania joined.

It was also during that time that Romania's largest bank was sold to Austria's Erste Bank. Austrian banks currently own more than 30 percent of Romanian market share.

"Gentlemen, you made huge profits in Romania from 2000 until 2009 and it would be a clear proof of foul play towards Romania if you intend to let our economy unfinanced during the crisis," he added.

It would be unfair to leave the bill of "banks' greed" and "irresponsibility" to be paid by EU newcomers, Basescu said, noting that it was banks like Raiffeisen and Erste that were giving out "easy loans" and mortgages to people who were unable to pay them.

The Austrian move seems to indicate what economists have long warned: that the euro crisis risks spilling over in the slowly recovering eastern European region.

Last Friday, the head of the London-based European Bank of Reconstruction and Development said that western banks will inevitably withdraw funds from eastern Europe in response to higher capital requirements.

It was precisely this development that Romania and other eastern European countries had sought to prevent when a deal on bank recapitalisation was sealed last month in Brussels. The agreement, calling on banks to keep capital flows at current levels, was non-binding, however.

Bank drain threat hangs over eastern Europe

With large parts of their banking sector in French, Austrian or Greek hands, eastern European countries are wary that upcoming rules on bank recapitalisation will allow regional subsidiaries to be drained of money, putting their economies at risk.

Euro crisis to smother growth in eastern Europe

The current troubles in the eurozone are slowing growth in eastern European countries, particularly Romania, Albania and Serbia, where Greek banks are an important part of the financial sector, a study by the European Bank of Reconstruction and Development says.

Macron and Merkel pledge euro reform

France and Germany have pledged to forge a joint position on euro reform by June, despite German reluctance on deeper monetary union.

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